Sometimes we need an echo chamber

It's Sunday, time for U.S. networks to broadcast their morning political talk shows, with politicians and pundits talking at, not with, each other. Political discourse in the U.S. has devolved into two "echo chambers"--one for Democrats, the other for Republicans, each one telling its supporters what they want to hear and disregarding any evidence that contradicts their views. It's good for all of us to punch a hole in our echo chambers, so that we can be exposed to ideas that contradict our own--that's where personal growth and respect for other opinions comes from. However, there's another echo chamber that we're building for ourselves, and it has nothing to do with politics--but everything to do with self-preservation.

I'm reading the current issue of Wired Magazine. I've subscribed to Wired for years, but it hit me this morning just how inane so much of the contents are:

• Jonathan Sherman, in a letter to the editor, complained about an article in last month's edition that mentioned the outcome of one of the characters in "The Sopranos." That's right, he complained about being told about the fate of a character in a television show that ended in 2007. He wrote, "Please, in the future, be more mindful of less up-to-date viewers." For Pete's sake, don't tell Jonathan about Rosebud.
• There's a discussion of how the use of silane in Loctite Epoxy would cause it to burst into flames upon exposure to oxygen. My epoxy bursts into flames all the time, but then, so does my Silly Putty and Fruit of the Loom underwear.
• A woman in an ad from plumbing fixture maker Kohler looks like she's going to have sex with a guy because of his...toilet. "My, what a big toilet you've got!" 
• According to watchmaker TAG Heuer, Leonardo DiCaprio wears his watch on the back of his right hand. That would make it difficult for him to use his big toilet.
• Chevron says that "Oil companies should think more like technology companies." So why don't they?
• Would you like to hear from Marriott's "Culturazzi"? I didn't think so.

That's just up to page 47. Much of the garbage in Wired is from advertisers, to be sure, but it's garbage that subscribers pay for. And, Wired is one of the better publications. Web-specific sites are filled with aggregated articles and SEO-tuned garbage from content farms like Demand Media. Bleeding has led on local television news for as long as I can remember. Your local newspaper is probably bloated with trivial feature articles and wire service stories, with a little original local news coverage thrown in for good measure.  Content on broadcast commercial radio has become the stuff between the commercials. Cable news channels take one story and beat it to death, then fill in the gaps with meaningless debates between talking heads.

We automatically filter most of this stuff out because, if we really paid attention to it, we'd go crazy. In turn, the media responds by fragmenting even further--putting more versions in more places. Advertisers run more ads, and make them more outlandish, in the hope of capturing attention--which we can measure, sort of, even if we can't measure how well the ads actually lead to sales.

We create our own echo chamber of media that we turn to, and ignore everything else. It's a logical defense mechanism. Spewing more crap through more outlets isn't going to break through our defenses--it's only going to lead to higher and thicker walls. 

Don't you want to find out which half of your advertising is wasted?

Some time in the early 20th Century, John Wanamaker, one of the fathers of the U.S. department store business, said "Half the money I spend on advertising is wasted; the trouble is I don't know which half." Kantar Media Intelligence reports that $144 billion dollars was spent on advertising in the U.S. last year. If Wanamaker's Rule is still in effect, that means that $72 billion was wasted.

How much television advertising do you pay attention to? Do you mute your television when the ads come on? Do you prefer to watch television from your DVR and skip over the ads? How about radio--like me, have you given up on commercial broadcast radio because there are simply too many ads? Do you instead listen to satellite radio (which still has ads, but fewer of them), a service like Pandora, or music on your iPod or phone? How many print ads in magazines do you pay attention to? When was the last time that you paid attention to a newspaper ad, or looked through the classified ads? Do you read the flyers and other junk mail you receive, or do you throw them in the recycling bin as soon as they arrive? When you're browsing the web, do you use an ad blocker?

The fact is that, with a few exceptions, we really have no way of directly measuring advertising effectiveness--no way of knowing how much of our advertising is wasted. The only way to scientifically test is to not only compare one ad against another, but to also test against a control of no advertising whatsoever--and no company is going to risk the potential harm of eliminating all advertising in order to test the difference between some form of advertising and none at all. While you're testing, you'd better account for macroeconomic effects as well: A test in 2007 would have had very different results than the same test in 2009.

So, we're at the same place as the ancient Egyptians and Greeks were when they performed highly symbolic, but ultimately ineffective, animal sacrifices. We don't sacrifice animals anymore; instead, we waste tens of billions of dollars that could be used for other, more productive, activities. Could we do without it? If we did, what horrors would the gods rain down upon us?

I'd argue that most large advertisers could cut their advertising expenditures by 50% with little or no effect on sales, and a big positive effect on their bottom lines. And, I believe that we're heading in that direction. Marketers are finding success with approaches that look little or nothing like conventional advertising, such as product placement and social media.

Advertisers who do try to cut their expenditures on conventional media in half are going to face tremendous pushback. Ad agencies and media buyers will tell them that their plan is risky, if not insane. (Ad agencies and media buyers get a large portion of their income from purchase of advertising space.) Media companies will sow fear, uncertainty and doubt within advertisers' management. Even advertisers' managers may fear that cutting the expenditures in half may result in "turning the field over" to their competitors. Making such a decision is going to take enormous courage on the part of executives. However, if it causes earnings before advertising and promotion expenses to fall more than the savings from the decrease in ad expenditures, companies can always ramp advertising back up.

For their part, media companies have to prepare for a future where they get the majority of their revenues from subscriptions and other income instead of advertising. As for media startups, building your business plan solely, or even primarily, on advertising revenues is a fool's game.

Advertising is dead. Deal with it.

Have you ever had the feeling that you were a fly buzzing against a window, not knowing that you could escape if you just moved a few inches to one side? That's how I've felt recently, thinking about how to build an advertising-supported Internet site. I've come to the conclusion that, for all but a handful of sites, it's impossible to build a successful business by depending on advertising.

The classical advertising model was based on an economy with few media outlets and many media consumers. In the U.S., for decades there were three broadcast television networks and three commercial television stations in most markets. In most cities, there were one, or at most two, newspapers. The scarcity of media outlets meant that each outlet had a large audience, and that audience attracted advertisers, who were willing to pay enough to turn the outlets into viable businesses.

The Internet turned the classical model on its head: Instead of having a small number of media outlets, each with large audiences, we have a huge number of outlets, each with small audiences. Only a handful of sites and services on the Internet have been able to attract the audiences necessary to make an advertising-based revenue model work. The cost of setting up an Internet site is tending toward zero, especially if you can convince people to create content for you for free. Operators of these kinds of sites can run them profitably, or at least not at a large loss, right up to the point where they have to pay people for their content and services. That's why The Huffington Post has pushed back so hard against bloggers who want to be paid for the content that they provide to the site. If the HuffPo had to pay for all its content at market rates, it would go bust.

The problem goes beyond the Internet--cable television networks, in the aggregate, have a bigger audience than the broadcast networks, but few cable networks attract a big enough audience on their own to be viable without fees paid by cable, satellite and IPTV services. That's why cable networks and service providers fight so hard against "a la carte" pricing that would allow subscribers to pick and choose channels.

So, what should you do? If you're thinking about starting a business, pick a business and a business model that allows you to charge users. If you're running a business that is advertising-supported, or that you hope to run on advertising revenues in the future, pivot to a business and business model that can be profitable on user fees. If you're an investor and someone comes to you with a business plan that depends on advertising revenues, walk away. In short, if you can't get your users to pay for your service, you're in the wrong business.

U.S. newspaper advertising declines for 15th straight quarter

The Newspaper Association of America reports that print newspaper advertising declined year-to-year in Q3 2010 for the 15th straight quarter, and in 18 of the last 19 quarters. The last year where there was more than one positive quarter was 2005. The story for national advertising (national advertisers running ads in local newspapers) is even worse: Q3 2010 was the 23rd straight quarter of declines, and the last "up" year for national advertising was 2004.

The declines in advertising revenue were to be expected, given that print circulation has been declining for years, but the newspapers are caught in a vicious circle: As circulation declines, circulation revenue falls, and the reduced circulation causes advertising revenue to decline. After two years of online advertising revenue declines, revenue increased for newspapers in all three quarters of this year so far, but total online revenues in Q3 were less than 14% of print revenues--far less than that needed to offset the print declines.

Most newspapers are going to have to jump to an online-only strategy sooner or later, but how far can they ride their print businesses before they have no choice but to make the transition? Further, can they afford to offer a meaningful newsgathering and editorial service on their online revenues alone?

Block search engines and increase ad clickthroughs?

PBS's MediaShift Idea Lab site has an article by Joe Boydston, VP of Technology and New Media at the McNaughton Newspaper Group and a 2009 Knight News Challenge Winner. Boydston runs the websites for three local newspapers that have employed paywalls for some time. In early 2008, McNaughton's management team realized that it was losing ad sales to Google, which was selling AdWords against the terms in articles on McNaughton's own sites. Searchers didn't have to go to the McNaughton sites to get to the articles, and the ad revenues went to Google. So, McNaughton edited its robots.txt files to bar search engines and aggregators from indexing its sites.

Common sense would say that traffic to the McNaughton sites should have gone down, as should have ad viewership, because the sites became "invisible" to Google, Yahoo!, etc. However, every significant metric actually went up (time on site, number of pages viewed per visit, etc.), and most surprisingly, ad clickthrough rates went up almost 10 times over the course of two years.

Boydston believes that the numbers went up because the sites have local news, sports and current events that aren't available from other sources. By denying access to the search engines and aggregators, McNaughton got more people to come directly to its own sites, where they saw more content and engaged more fully with the ads.

This strategy may also make it possible for publishers like McNaughton to run their sites without paywalls. After all, publishers generally impose paywalls because they can't sell enough advertising to be profitable. If they succeed in driving traffic back to their sites by cutting off search engines, their advertising will become more valuable...possibly valuable enough to make the sites themselves free.

The McNaughton strategy will work with sites for which there are no good substitutes with indexed websites. Small- and medium-market local newspapers, as well as high-value specialty publications, fall into that category. National  and major-market newspapers with many competitors probably won't succeed unless everyone decides to block the search engines and aggregators.

In any event, it does represent a possible Achilles' Heel for Google. If more and more publishers decide to block search engines, the value of Google's entire AdWords program will decline. Consider: If Microsoft  had simply paid publishers to block all search engines and aggregators rather than spent hundreds of millions of dollars on Bing, they could have "cut off Google's air supply" and forced Google into expensive revenue-sharing agreements.

Eric Schmidt: The Internet is a "cesspool"

Image by Eric Schmidt / Google
via CrunchBaseAccording to this article from Advertising Age, at a meeting with magazine executives yesterday at the Googleplex, "The internet is fast becoming a "cesspool" where false information thrives, Google CEO Eric Schmidt said yesterday." Schmidt's solution is to bring more magazines and other old media sources onto the Internet, where their trusted editors can make the decisions on what is right and wrong, and on what information Internet users are entitled to get.

Schmidt's words might have gone down well with the magazine publishers in the audience, but it runs counter to the Internet serving as a forum for the expression of information and ideas, and it trivializes the ability of Internet users to tell fact from fiction. (And, as anyone who followed the false Steve Jobs heart attack story last week knows, it was CNN that gave the story legs and helped it to do so much damage.)

It is, in fact, this "cesspool" that makes so much money for Google. It's the blogs, websites and email that Google places its AdSense text, banner and video ads on. It's the millions of videos uploaded to YouTube that Google sells advertising against. So what, exactly, is Eric Schmidt saying?

If he wants to put his money where his mouth is, here's what he should do:

• Drop all AdSense ads from Blogger (the posts there might be incorrect.)
• Screen all websites getting AdSense or DoubleClick ads on a regular basis for accuracy, and drop those whose content is deemed to be insufficient of Mr. Schmidt's standards.
• Screen all YouTube postings for accuracy, good taste, and whatever Mr. Schmidt seems to feel is wrong, and delete those found wanting. Better yet, why not save money and shut down Blogger and YouTube altogether?
• Stop putting ads in Gmail (the contents of the mail might be inaccurate or offensive.)

Schmidt can't do these things because his advertising revenue would drop by half overnight. Google makes most of its money by selling search ads against, hosting and delivering the contents of that cesspool.

Microsoft's Idea of Cool

The second Seinfeld-Gates commercial (more like a mini-movie) is out on the Microsoft website. Earlier this week, I listened to the This Week In Tech crew spend a half-hour deconstructing the first commercial in the series, as if it were a Supreme Court decision. Folks, you're reading way too much into these ads. Apple's "Mac vs. PC" ads purport to show how superior the Mac (and Mac users) are vs. Windows and Windows users, but these new Microsoft ads are designed to show that Windows is for "real people". In the second ad, Gates and Seinfeld struggle to fit into a "real family", but the point is that they're trying to fit in, while Apple, by implication, is only for the elite.

Let's not forget that the advertising agency that created these ads currently has the Burger King being hit by a cab and Volkswagen Beetles talking with a German accent. Sophisticated comedy is not their thing.

Going, going...

If you're a newspaper publisher, the Newspaper Association of America issued some pretty horrifying news today. Total newspaper advertising revenues dropped $3 billion year-to-year in the first six months of 2008, to $18.8 billion dollars, and online newspaper ad revenues dropped for the first time. Alan Mutter, who writes the Reflections of a Newsosaur blog, plotted the decline for his readers:

 

In non-adjusted dollars. these are the worst results in 16 years, but Tim Windsor restated the results in constant 2008 dollars, and determined that these were the worst results since 1982. Here's Tim chart:

Using inflation-adjusted numbers, ad revenues are actually lower than they were in 1982. In addition, according to the NAA, national daily circulation has been falling steadily since 1988, and Sunday circulation has been falling since 1990.

We're in a recession, so that's magnifying the revenue fall-off, but it's very clear that a lot of newspapers are either reaching or have passed the tipping point at which they don't have the resources to attract and keep readers. With less advertising, the news hole either gets bigger or the newspaper gets smaller. If you can't afford to pay enough writers and editors to fill the news hole, the only option is to make the newspaper smaller. At some point, the newspaper goes away.

Broadcasters should take no solace from these numbers. The audience for news shows has been dropping for years, and the average age of the audience watching the national nightly news is over 60. CNN, Fox and MSNBC aren't enlarging the news audience, they're simply trading it among themselves.

Years ago, Ted Levitt, a marketing professor at the Harvard School of Business, asked the rhetorical question "What business are you in?" Newspaper publishers aren't in the newspaper business, they're in the information business. They've got to figure out profitable ways to get their information to customers. For a lot of publishers, that's not going to involve a printing press for much longer.